Author: Felix Salmon

The big meeting this morning between global bankers and regulators is exactly the meeting I was hoping would happen. A large group of bold-face names such as Larry Summers, Brian Moynihan, Alistair Darling, and Mario Draghi, meeting behind closed doors, reportedly came to the obvious yet necessary conclusion that, in the words of Darling, “we are agreed that whatever we do, it needs to be universal. You’re dealing with a global banking system. You need a common approach across the world”. And some good news is slowly emerging: already regulators and banks seem to be coalescing around the need to create a wind-down fund which would allow the orderly resolution of insolvent banks.

It’s easy to say such things, of course: the difficulty is in the international coordination needed to enact them. At the panel on financial regulatory reform today, everybody was at pains to say that every country is different and therefore needs its own custom-built regulatory regime: all we’re really talking about here is something called “regulatory consistency”, which, if the stars align correctly, might hopefully cut off most of the opportunities for banks to engage in regulatory arbitrage.

Yeah, me neither.

Still, a few interesting ideas did emerge. I particularly like the idea that no banks should be allowed to have branches in foreign countries: if you want to set up abroad, you need to have fully-fledged subsidiaries in each company, regulated domestically as if they were domestic banks.

This would have a lot of good consequences. For one thing, it would prevent problems such as those we’ve seen in Switzerland, Iceland, and the UK, where bank assets are enormous multiples of GDP, and consequently bank bailouts can be fiscally disastrous. It’s worth noting that Kaupthing had a subsidiary in Germany, while Landsbanki had branches in the UK; the result is that now the Icelandic government owes enormous sums of money to the UK, and nothing to Germany.

There’s also the Mexico problem, which is true in many other emerging markets as well: the Mexican banking sector is dominated by three foreign banks, all of which are too big to fail in their home country. Should their Mexican subsidiaries be forced to have high capital ratios and low leverage just by dint of the size of the parent company? What will that mean for the availability of credit in Mexico? Perhaps if those subsidiaries were truly answerable to the Mexican regulatory authorities, that might help matters. And it would also help fix the Walmex problem: Walmart has banking operations in Mexico, but it isn’t allowed to do that in the US, and isn’t regulated as a bank in the US. Which means that there really isn’t an ultimate bank regulator for Walmart’s Mexican banking subsidiary.

The star of the panel, however, was Davide Serra, the principal of a UK hedge fund named Algebris. He’s caused quite a splash at Davos in 2010, and seems to have built some very strong connections with high-level policymakers in the official sector. He said that if you have 2,800 people at the Financial Services Agency in the UK trying to regulate 1 million better-paid financial-sector employees, that’s “like trying to regulate a Ferrari with a skateboard”. And he also said, quite rightly, that it’s possible to focus far too much on capital ratios: after all, insolvent banks can continue more or less indefinitely, while a bank facing a liquidity crunch can collapse within a day.

Serra noted that the US, with its six different bank regulators, was “a disaster”, and that the UK, with its three regulators, wasn’t much better; the countries which navigated the crisis most effectively had only one regulator. And he had a provocative idea about who that one regulator should be, saying that it should be given, every five years, to the most admired and successful bank CEO of the time. It’s an idea which won’t ever happen, but it does make a certain amount of counterintuitive sense when you start to think about it.

Ultimately, I doubt that the World Economic Forum has really made any difference to the global regulatory agenda, or to the US decision to chart its own course with things like the Volcker Rule rather than try to engineer international consensus. But if it has made a difference, I think it’s done so by forcing the banks to face reality and start making constructive noises about helping to build a new global regulatory regime, rather than simply fighting any proposed rules which might crimp their risk-taking. A world where Barney Frank and Gary Cohn can agree is a world with some hope left in it.

Justin Wolfers wonders about what he sees as an economics-reporting arbitrage: given this chart, he says, why aren’t editors and reporters doing a better job of moving resources into economics reporting?

Justin’s list of possible reasons is a good one; I’d add a couple more.

Firstly, the question asks not about what Americans think of reporting on the economy, but rather what Americans think about the reporting on policies and practices of the Obama administration as they relate to the economy. Historically, reporters who understand economics and finance have generally been in New York rather than Washington — while the Wars and Terrorism reporters have been in Washington all along. But if you’re reporting on the Obama administration’s economic policies, you need to be in DC. The move to DC is happening, but it’s maybe not happening as quickly as the public would like.

Secondly, the simple fact is that the Obama administration has been much less good at communicating its economic policy than it has been at communicating its policies on other matters. Tim Geithner is not a great communicator, and the administration’s economic policy in general is very complex: it’s hard to reduce it to a simple choice like “Afghanistan: stay or go”, or “Healthcare: should there be a public option or not”.

More generally, I think the answer to the question is simply a function not of the quality of reporting on the economy, but just of the degree of confusion and anger that Americans have when they look at what has happened over the course of the Great Recession. That’s something that the news media can attempt to address, but it’s a very tough job, and they’re certain to fail with a large amount of Americans a large amount of the time. For all we know, this 40% figure is actually much lower than might be expected given the depth and complexity of the recession.

Still, I hope that the news media will use the results of this poll to increase the quantity and quality of their economic reporting. Right now, you can never have too much.

Every so often at Davos you have a short, startling conversation which completely changes the way you think about a subject — and I just had one of those standing next to Dan Barber, the chef of Blue Hill Farm. He’s a very smart, very funny guy, who’s passionate about food on every level from preparing the ingredients of the dishes in his restaurants to the logistics of feeding the planet.

I bumped into Barber as we were milling around the Davos conference center, waiting for the panel on “rethinking how to feed the world” to begin. I asked him what he thought of the food in Switzerland; he compared in unfavorably to what he was fed by the airline on the way over here. “I haven’t seen a vegetable since Thursday,” he added, looking a bit overwhelmed by the number of things that the Swiss seem to be able to do with bread, cheese, and bit of veal.

When the panel started, I could almost see the steam coming out of Barber’s ears. It featured two heads of state; two agribusiness CEOs; a representative from the World Bank; and Bill Gates. All of them looked at food mainly as a matter of logistics and problem-solving, and they seemed to do so with real good will and good motives. (Well, maybe not the CEO of ADM.) But they were all very much bought into a model which looks, to Barber’s eyes, incredibly shaky.

Essentially the problem is that the people on the panel have internalized the principles of comparative advantage and free trade to the point at which they are more or less incapable of thinking any other way. In a Ricardian world it makes sense for Ohio to overwhelmingly grow corn and soy, since growing corn and soy is what it does best. And because of economies of scale, it makes sense to grow just one type of each, on farms of mind-boggling size. Ohio can then trade all that corn and soy for the food it wants to eat, and everybody is better off.

Except in reality it doesn’t work like that. Monocultures are naturally prone to disastrous outbreaks of disease, which can wipe out an entire crop. The panel at Davos has a favored method of dealing with such things: the development of disease-resistant crop strains, often through high-tech and patentable genetic modification. Bright research scientists create clever transgenic crops, and then people like Bill Gates and the World Bank try to get them broadly adopted while setting well-intentioned staffers to work minimizing potential problems with IP licensing. Innovation through agricultural technology is the obvious and necessary solution to the problem of global hunger.

Barber isn’t anti-science, nor is he anti-innovation. But he knows (and the panelists know too) that a system of globalized agriculture can break down, as we saw during the commodity boom of 2008. As the price of soy and rice and wheat soared, exporters started hoarding rather than selling, and importers couldn’t obtain necessary supplies at any price. As the World Bank’s Ngozi Okonjo-Iweala noted, Ukraine had 5 million tons of surplus wheat, but the international food markets were very thin, and it was extremely difficult to get that wheat exported. The system didn’t work like it was meant to: when put to a real-world test, it broke down.

Problems associated with monocultures can pop up even when there isn’t a commodity-price bubble, too: look, for instance, at the tomato plight which devastated the northeast US last year. Barber explains clearly what happened: millions of more-or-less identical starter plants were transported across the US by huge corporations like Home Depot and Wal-Mart which have neither the inclination nor the ability to notice when the plants are showing signs of blight. Those starters, planted by enthusiastic amateurs across the nation, then started “transferring their pathogens like tiny Trojan horses” into the local biosphere.

The solution to this problem, in Barber’s view, is indeed disease-resistant plants, but not in the sense that a company like DuPont thinks of such things.

To many advocates of sustainability, science, when it’s applied to agriculture, is considered suspect, a violation of the slow food aesthetic…

That includes the development of plants with natural resistance to blight and other diseases — plants like the Mountain Magic tomato, an experimental variety from Cornell that the Stone Barns Center is testing in a field trial. So far there’s been no evidence of disease in these plants, while more than 70 percent of the heirloom varieties of tomatoes have succumbed to the pathogen.

Mountain Magic is an example of regionalized breeding. For years, this kind of breeding has fallen by the wayside…

Healthy, natural systems abhor uniformity — just as a healthy society does…

What does the resilient farm of the future look like? I saw it the other day. The farmer was growing 30 or so different crops, with several varieties of the same vegetable. Some were heirloom varieties, many weren’t. He showed me where he had pulled out his late blight-infected tomato plants and replaced them with beans and an extra crop of Brussels sprouts for the fall. He won’t make the same profit as he would have from the tomato harvest, but he wasn’t complaining, either.

This kind of thinking involves education, but not education of the top-down, web-enabled type that one hears so much about at Davos every year. Instead, it’s a slower but more robust form of bottom-up education, enabling farmers to identify problems, find their own individual solutions, and reject one-size-fits-all approaches. Everybody in the audience was excited when Bill Gates started talking about how much extra wealth flood-resistant rice strains brought to some of the poorest rice farmers in south-east Asia. But no one talked about creating relatively small and self-sufficient agricultural communities: the model is still very much that you sell your one crop for money, and then use that money to buy whatever other food you might need.

And there are big problems with that model, not least because the hungriest nations on earth tend to lack the transportation infrastructure necessary to affordably get different crops from one side of the country to the other. There was some interesting talk on the panel about what the CEO of ADM called “post-harvest innovation” — research into the questions of how to get food from big producers of single crops and into the mouths of the hungry without it spoiling or getting somehow diverted or lost. And there was lots of talk based on a simple — indeed, simplistic — syllogism: there are 1 billion hungry people in the world who suffer from malnutrition, therefore there isn’t enough food in the world and we need to invest in agricultural innovation so that we can produce more.

But Barber doesn’t buy it: there’s more than enough food in the world already, he says. Literally more than enough: look at what’s happening to obesity rates, and look at how much food is wasted every day. In a world producing corn and soy on a mega-industrial scale, more food doesn’t necessarily mean less hunger: it’s much more likely to simply result in more waste and worse public health.

Barber’s vision of farmers listening to nature and producing a wide variety of crops suited to the local terroir is compelling, even if it isn’t a panacea: I’d urge you to watch his TED talk, especially where he ties it all together in the final three minutes. Food will always be a commodity, and as the world becomes increasingly urbanized, it will always be trucked in to massive cities over long distances. But there’s no reason why different cities in the same country should increasingly eat exactly the same food. Localization and heterogeneity have to be part of the solution, and there was no sense of that at all on the Davos panel.

When I was at Davos two years ago, Michael Pollan and Alice Waters were big draws. This year, Barber is getting a lot of attention. But there seems to be a disconnect: people think of the locavores as solving a luxury problem of how to eat healthier and more delicious food in rich countries, and they’re not asking whether they have anything to teach with respect to big questions like world hunger.

That might be changing: Barber told me about a brief conversation he had with Bill Clinton, where Clinton said that he now greatly regrets a lot of the agricultural policies he put in place as president. And Clinton, of course, is thinking long and hard about designing agricultural systems these days, given that agricultural production accounts for most of the wealth of Haiti and needs to be rebuilt more or less from scratch. Here’s hoping that Clinton helps to build an agricultural system in Haiti which is designed first and foremost to feed Haitians through diverse local food production, and only secondarily to provide export income to buy food and other necessities. Because the cash-crop model, as we’ve seen many times, is far too prone to disastrous failure.

I’ll be doing a live video interview with Nouriel Roubini here on Reuters.com in a couple of hours (6:20pm Davos time, 5:20pm GMT, 12:20pm ET), asking him questions from readers. So if you have anything you want me to ask him, leave a comment on this blog or on the liveblog, or send a tweet with the #askroubini hashtag. It should be fun!

Update: Here it is!

I’m not a fan of excluding Treasuries from the proposed new bank tax. For one thing, Treasuries are assets, not liabilities: they’re technically not covered by the tax in the first place. What’s really being talked about here is the repo market, which has grown far too big, and which has made it far too easy for banks to borrow money at ultra-short maturities.

It’s true that if the repo market shrank dramatically, that might conceivably reduce demand for Treasuries so much that, as JP Morgan has suggested in a research note, the revenue from the fee could be completely offset by the Treasury’s increased costs of borrowing. On the other hand, estimates of the effects of reduced demand on Treasury prices are notoriously unreliable.

Against that is the fact that shrinking the repo market is probably the easiest and most painless mechanism that we have for shrinking the banks — and we want to shrink the banks. In that sense, the deleterious effect of the new fee on the repo market should probably be considered a feature rather than a bug. Let’s keep it in.

This is a great hire: the Huffington Post has brought on Simon Johnson as a contributing business editor, underscoring the way in which the historically staid and boring intersection of politics with economics is pretty much the hottest game in town right now.

The hire works both ways: Simon bring with him a huge amount of credibility and expertise, a fantastic nose for newsworthiness, and his equally-bright partner at Baseline Scenario, James Kwak, who understands intuitively the speed and power of the blogosphere. At the same time, Simon and James now get access to the HuffPo’s reporting staff, who have been doing great work of late, and who are a great resource with a truly complementary skillset to that of the Baseline Scenario team.

Up until quite recently, the blogosphere was almost entirely parasitical on the MSM: newspapers would do the shoe-leather reporting, and then bloggers would add layers of conversation, commentary, and debate. The exception was the world of technology and media blogs, where the likes of TechCrunch and PaidContent have been breaking news for years. Now, as the likes of Politico and HuffPo start aggressively reporting in their own right, the blogs are moving into the world of original political reporting; inevitably, over the next couple of years, we’ll see the same thing happening in finance and economics.

Reporters are expensive, of course, and you can’t expect them to post multiple times per day if they’re chasing down a breaking story. But as the FT and the WSJ retreat behind their firewalls, there’s a wide-open opportunity for a fast-moving and well-financed financial site to start becoming a must-read on Wall Street in the way that TechCrunch and Politico are in Silicon Valley and DC respectively. Maybe if Simon helps to build the HuffPo business section into something agenda-setting, the next step might be for Arianna to move into the world of finance, competing with the likes of Henry Blodget, and making the financial blogosphere in general something much richer and deeper than it is right now.